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A training teacher talks to a trainee at a metal works training center at BMW Group Plant. (Photo by Jens-Ulrich Koch/Getty Images)

This is the fifth and last installment in a series on how the economy can cope with the economic and financial strains of aging demographics. The first in this series laid out the problems.You can read it here. The second and third installments took up the answers offered by immigration and the increased participation of the existing population in the workforce.You can read these here and here. The fourth installment explained the potential relief according by trade.You can read it here. This last installment turns to the training and innovation needed to facilitate the relief offered by trade. For a more nuanced and detailed look at all these matters, there is my recent book Thirty Tomorrows.

Trade can help alleviate the pressures of this country’s aging demographic by allowing the economy to source labor-intensive products from abroad. It can only work, however, if the United States has something else to sell the world in return. Right now, the country has huge comparative and absolute advantages in producing high-value products. Its workforce is better educated and better trained than those of the emerging economies, where the United States would source its purchases of labor-intensive products. That workforce also has much more capital and technology at its disposal. To carry on this way, the economy will need to sustain these advantages, and that will involve an ever-greater emphasis on training and innovation.

When it comes to innovation, three supports present themselves: profits and cost-effective regulation, for those who would finance the effort, and education for those who would direct it. The profits part is most straightforward. Firms need a surplus to pay for the research and development (R&D) and make the other investments that allow them to implement innovations. Though there are no guarantees that profitable firms will steer their surplus in these directions, it is a sure thing that the lack of a surplus will starve such efforts for funding.

Regulation’s effect is more complex. Overpowering and ill-considered rules hurt by cutting needlessly into profits. Perhaps worse, they also discourage innovation by making it difficult or otherwise unprofitable to invest in new techniques. When, for instance, EU rules imposed price controls on European drug companies, their R&D efforts quickly fell compared with their American counterparts, which had no such controls imposed on them. In less than two years, European firms were spending 24% less on research than the Americans. Regulation plays an important social role, of course, but capricious, high-handed and needlessly burdensome rules kill innovation while cost sensitive, well-considered applications can encourage it.

Education has still more complex considerations. These days, the emphasis on innovation seems to lie with the so-called STEM disciplines, science and technology, engineering and mathematics. There can be little doubt that engineers and scientists are an essential part of the innovative process, but they are far from sufficient in themselves. For that the economy needs a wide array of people with a great variety of perspectives, many far from technically inclined. It is these people who see economic and market applications that scientists and mathematicians, focused as they are on their own concerns, would almost surely miss. When, for instance, defense work and NASA in the 1960s emphasized miniaturization, it was non-technical sorts, not the NASA scientists who saw the numerous commercial applications that made miniaturization into a major economic driver for decades. This is just one example.The narratives of many of these applications show that and exclusive focus on STEM can actually hinder the discovery of market and production applications. These might best come from people educated in entirely different disciplines, many not even part of a university education.

If the history of innovation suggests that diverse studies from art to theology can provide as much impetus as STEM to the process, a high-value based economy also needs trained workers.These are not necessarily university graduates but rather are the people who can operate and repair the equipment that typically embodies innovation. The computer would have helped industry a lot less if its workers could not operate it or were insensitive to its physical frailties, two failings that remain a severe problem in developing economies, not in the lab or the classroom, of course, but very much so on the job site or construction project.

In this respect, the United States could learn from other developed countries. The American emphasis on college for everyone has not only neglected the kind of sophisticated vocational training needed to sustain a high-value oriented economy, but it has also discouraged people from seeking such training by implicitly denigrating its value. Countries like Germany, for instance, stand in contrast.It has active apprentice programs to produce highly trained workers that can readily apply innovative techniques. The United States could gain by following this example. But apprenticeships alone will fail to cover the need. A high-value economy also must include support for retraining. The more innovative an economy, the less skills learned as a youth can serve an entire working life. In retraining, sadly, there is limited good news.Germany’s efforts to re-arrange its apprentice approach for mid-career retooling have largely failed. Retraining programs in the United States and other developed economies have as well or at best have met with only limited success.

A survey of retraining programs across developed economies, both public and private, does however reveal some pointers on how to meet this need. Public programs in this country frequently fail because they mix workers seeking retraining with disadvantaged youth. Without judging either group, it is clear that these different people have different motivations, as well as different advantages and disadvantages. Lumping them together serves neither group well. In contrast, the best results occur when employers get involved, either by running the training program for themselves or by working with educational institutions to tailor the program. In contrast to publicly run efforts, these have clearer objectives, and, by offering a job at the conclusion (if not a promise, then a good probability) they instill a strong motivation for those involved to pay attention and finish. Increasingly, schools in troubled parts of the country have embraced variations on this approach, partnering with employers to tailor curriculums. The economy needs more such efforts to develop the trained workforce it will increasingly require.

This discussion provides but a sketch of what is clearly a complex and nuanced matter.The other installments in this series have done the same. Still, they give a sense of where the country must go to cope with the otherwise severe economic and financial problems that aging demographics will bring. No single answer will do. Increased participation alone cannot meet the need without targeted immigration, and both will fail to protect living standards fully if the country fails to make the adjustments necessary to use trade as a means of supplementing its demographically imposed weaknesses. A combination of answers, however, does have a good chance of protecting this country’s living standards even in the face of these otherwise destructive demographic trends.